Williams Sees China as Next `Fallen Angel' After Japan, Nasdaq
An investor looks at stock quotes at a securities trading firm in Shanghai. Photographer: Kevin Lee/Bloomberg
July 16 (Bloomberg) -- Anthony Bolton, Fidelity International's president of investments, talks with Bloomberg's Susan Li about the outlook for the Chinese economy and the nation's property and stock market. Bolton said yesterday China’s "golden era of exports" is over and a bull market will resume for the country’s stocks this year as domestic consumption drives economic expansion. (Source: Bloomberg)
Larry Williams, a trader who correctly forecast the 1982-1987 bull market, said the bear run in Chinese equities may last until at least 2012, based on a benchmark index’s exponential growth followed by steep declines.
The quadrupling in the Shanghai Composite Index between 2006 and 2007 reminds Williams of the Nikkei 225 Stock Average in the 1980s and the Nasdaq Composite Index in the late 1990s. Both the Nikkei 225 and Nasdaq created fallen-angel patterns -- they rose exponentially, then failed to extend their record highs, setting off accelerated declines from which they have since been unable to recover, Williams said.
“We saw the exponential rise in Japan, we saw it in Nasdaq, and now we’re seeing it in the Shanghai index,” Williams, 67, said in a telephone interview from his home at St. Croix, Virgin Islands. “When markets topped out and broke hard, they just don’t come back for a long time.” Drawing parallels to Japan and Nasdaq, Williams said China’s current bear market may last until 2012 or beyond.
Williams, who won the 1987 World Cup Championship of Futures Trading by turning $10,000 into more than $1.15 million in 12 months, met with central-bank officials during his trip to China this month. The government will continue to keep inflation in check over the next two years and as a result, stocks will stay under pressure, he said.
Shanghai Decline
The Shanghai index is down 26 percent this year for the second-worst performance among the 93 major equity benchmarks tracked by Bloomberg globally. Shares slumped after the government stepped up measures to curb inflation and property speculation. The measure closed unchanged at 2,424.27.
Agricultural Bank of China Ltd. shares climbed 2.2 percent on its first day of trading in Hong Kong. The stock fell 0.4 percent in Shanghai, erasing part of yesterday’s gains that marked the smallest first-day advance among the nine lenders that have sold shares in the city.
Since reaching a record high of 6,092.06 on Oct. 16, 2007, the Shanghai Composite has tumbled as much as 72 percent. After rebounding last year, the index hasn’t recouped a quarter of the loss.
“That’s the real kicker to it -- monetary constraints act as brakes on the stock market,” Williams said. “We’ll have rallies and declines, but not that exponential zoom into new highs. People are not going to say, ‘Happy days are here again. Pop open Champagne bottles.’”
Likely Rebound
Frank Li, a strategist at JPMorgan Chase & Co., said in a July 13 note that a short-term stock rebound is likely as valuations improve and a decline in agricultural prices may give authorities more leeway to adjust monetary policy. Consumer prices increased 2.9 percent last month, slowing from May’s 3.1 percent gain, the fastest pace in 19 months, according to China’s National Bureau of Statistics.
Williams started trading securities in 1962 and created the Williams %R market-timing tool. In his best-selling book, “How to Prosper in the Coming Good Years,” published in 1982, he forecast a booming stock market by the end of the decade, bolstered by tax cuts, low inflation and growing high technology industries. The Standard & Poor’s 500 Index rose every year through 1989, and almost tripled during the period.
Williams, who first visited China in 1980, said he still sees trading opportunities in the country’s stock market, even though he thinks it’s range-bound.
“The pattern is we’re in a sideline,” he said. “Buy the big rally and sell the break. There will be no new high coming for a long time.”
To contact the reporter on this story; Lu Wang in New York at lwang8@bloomberg.net
Rate These Stories
Rate this Page